Wednesday, January 16, 2008

Speculation Grows Ahead Of Fed Meeting

The next Federal Reserve meeting is scheduled for January 30, but with all the dismal economic data in recent weeks and the expected disastrous earnings results at top banks (Citi has just reported an $18 billion writedown in mortgage investments), plans may change. Although the date for the next meeting is only 2 weeks away, there’s belief that Bernanke may summon an inter-meeting to discuss a quarter-, or even half-percentage point rate cut. According to analysts, he may cut some more at the actual meeting. The market is suggesting a 0.75% rate cut, a rare event in the Fed’s practice, with some economists demanding a whole percentage point cut – an unlikely scenario, given the Fed’s concerns over inflation, oil prices, and the dollar’s weakness. Chairman Bernanke signaled that the Fed is ready to take radical action to save the economy, but after all, there’s a chance that it won’t be necessary. I guess the Fed will rather wait for a couple of weeks than summon an emergency meeting.

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